Lord O’Donnell is urging the Government to push ahead with plans to introduce an LTV cap in order to bring individual borrowing under control.
In an interview with the Financial Times, the former cabinet secretary says the Government should follow Canada and look at strict limits on borrowing. He suggest 80 per cent as a guide
Lord O’Donnell says: “I think we should debate whether there should be regulations. Canada has some successful rules and some successful banks. We have some really good role models.
“I personally would urge [the government] to think about what a right level of loan-to-value ratio is. We should not encourage a move back to where it is very easy to borrow a lot.”
In a House of Commons debate in February, Chancellor George Osborne outlined plans to give the Bank of England’s financial policy committee the power to limit high LTVs as a lever to control growth.
In March, the FPC rejected the power, claiming it was too important to society and would require a parliamentary mandate.
However, in September the Treasury launched a consultation on the macro-prudential powers which could still result in the FPC being awarded the power to cap LTVs. The consultation closes on 11 December.